Wednesday, April 5, 2017

Understand opponents in dynamic and competitive market

The article Competitor Analysis: Understand Your Opponents points out the importance of the identification of competitors from various dimensions, interior and exterior of the industry, today and future’s competition situations. In my perspective, understanding opponents is a chance to know more and the company itself, including the weaknesses and strengths, which could not only make sure the company survives in the intense competition but also takes up more market share.

The reason that the competitor analysis is crucial is that more and more industries are in dynamic nowadays. The trend of Internet era is that the barrier to entry an industry is getting easier. For example, on the earlier time of Facebook, there were just a few college students loving computer science in the team. Actually, a lot of corporations succeed in the computer industry by their unique software or platform, with no help of considerable capital or supportive team. Since there are fewer insurmountable barriers to entry, the market has more and more intense competition, instead of the previous situation that several giant companies in an oligopoly or even monopoly market. The pie in the market is in fragmentation today.

Now we are living in the society with an explosion of information. Under this circumstance, the success and failure of a company may get faster because their product and service could get a response from customers rapidly. If one company does not concentrate on innovation and update for its products, it will lose the game in a short time. To be illustrated, Nokia, the No.1 cell phone producer once in the world, did not catch up the trend of the smartphone, inducing drastically shrinkage of market share.

As the article indicates, the starting point of competitive analysis is the identification of competitors. A company should focus on the company providing substitutes for its own products. For example, Kodak, the giant in the film industry, was not defeated by Fuji, its main opponent, but by the digital camera company, such as Nikon, Canon, and Pentax. Not only substitutes, rivalry among the industry who provides similar product should also be focused. For broader definition, an opponent who has wants similar interest is our potential opponent. In the history, after signing the contract of Soviet-German Treaty of Non-Aggression with Germany and sharing the interest and territory of Poland, Soviet Union did not pay much attention to the defense of Germany. Later in 1941, when Germany invaded the Soviet Union, Russian Army collapsed in the first six months, even Moscow was almost occupied by Germans. This story told us to watch out our rivalry all the time, even sometimes there is cooperation between the two companies.

The article also shows that positioning is a key factor for a company. Knowing the strengths and weaknesses could provide a company with information of the market situation. In my opinion, the methods of creating similar map and rating could help the company develop strategies in the future or in a new market, more than keeping competitive in current. The success of Starbucks and Pizza Hut are good examples of differentiation in positioning in the different market. Since most people have no custom of eating pizza and drinking coffee in China, the low price and large sale volume strategy does not work. Now that the number of customers is in limited, Starbucks and Pizza Hut set their positioning in the China’s market as a high-end brand, because their customers in China are willing to pay more money for the native American style pizza and coffee, even the price is higher than the US market. The strategy of the price of discrimination helping these companies earn a large profit in the oversea market is actually differentiation of positioning. Meanwhile, Starbucks and Pizza Hut took advantage of their reputation and were recognized as a symbol of American culture by Chinese, in order to compensate weakness in relative high price and get great success.

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